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This PDF is a selection from a published volume from the National Bureau of Economic Research
Volume Title: Measuring the Subjective Well-Being of Nations: National Accounts of Time Use
and Well-Being
Volume Author/Editor: Alan B. Krueger, editor
Volume Publisher: University of Chicago Press
Volume ISBN: 0-226-45456-8
Volume URL: http://www.nber.org/books/krue08-1
Conference Date: December 7-8, 2007
Publication Date: October 2009
Title: National Time Accounting and National Economic Accounting
Author: J. Steven Landefeld, Shaunda Villones
URL: http://www.nber.org/chapters/c5056
4
National Time Accounting and
National Economic Accounting
J. Steven Landefeld and Shaunda Villones
The National Time Accounts (NTAs) are a major step forward in the measurement of well- being. Since the inception of national economic accounting, it has been recognized that using Gross Domestic Product (GDP) per
capita was an incomplete measure of social welfare. Over time there have
been numerous proposals for developing a broader measure, but the basic
data and concepts needed were not available to produce a comprehensive,
consistent, objective, and useful measure of well- being. Recent developments in the form of official time- use data and advances in concepts and
methods in economics and psychology have made the National Time-Use
Accounts possible, as presented in Chapter 1 of this volume by Krueger,
Kahneman, Schkade, Schwarz, and Stone (henceforth, KKSSS). This chapter compares the NTAs to the U.S. national economic accounts—the National Income and Products Accounts (NIPAs). It first examines the NTAs
in terms of the basic characteristics of the NIPAs and then in terms of how
the NTAs might be used in conjunction with the NIPAs.
4.1
National Economic Accounts
The U.S. National Economic Accounts were developed to address both
a gap in measurement and a related policy need. Prior to the national accounts, there was only fragmentary and sometimes duplicative data on the
state of the economy. As a result, Presidents Hoover, Roosevelt, and their
advisers had no comprehensive information on the state of the economy
and were left to develop economic policy during the Great Depression with
J. Steven Landefeld is the director of the Bureau of Economic Analysis, U.S. Department of
Commerce. Shaunda Villones is an economist at the Bureau of Economic Analysis.
113
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J. Steven Landefeld and Shaunda Villones
such business indicators as building contracts, manufacturing production,
sales of 10- cent chains, industrial and railroad stock price indexes, and rail
car shipments.1
In response to this critical gap in data, the Department of Commerce
worked with Simon Kuznets of the National Bureau of Economic Research
to develop a comprehensive and consistent measure of economic activity
based on national income in the aggregate and by industry (Kuznets 1934).
These national income accounts were delivered to the Congress in 1935 and
were used by President Roosevelt in his State of the Union address in January of 1936. Wartime planning needs led to the extension of the accounts
to a measure of production in the aggregate and by type of spending. These
national product accounts were introduced in 1942 and immediately used in
war and then postwar planning activities. Over time, the National Income
and Product Accounts expanded in response to business and policymakers’ needs to a rich set of integrated national, international, regional, and
industry accounts.
National economic accounts are one of the most successful analytical
measures used in the United States and around the world. The national
accounts, in combination with better informed policies and institutions, have
contributed to a reduction in the severity of business cycles and a postwar
era of strong economic growth. This success and the tendency for policymakers to use GDP per capita as a shorthand measure of improvements in
standards of living and welfare have also been one of the sources of calls
for a broader measure of welfare than GDP.
Therefore, it is instructive to look at the characteristics of the NIPAs and
use those characteristics to examine the NTAs to see how they measure up
and might be used by policymakers and the public.
4.1.1
Comprehensiveness
The first characteristic of the NIPAs is that they are a comprehensive
measure of all economic activity. The total not only gives a picture of the
overall economy, but because it is built up as an unduplicated total from its
components, it is possible to examine the effects of a policy change or economic event on the total as well as to trace through its effects on the various
parts of the economy.
The NIPAs provide an unduplicated count by measuring GDP in one
of three ways. The first is GDP, which is measured by final spending on
each type of good or service. By measuring only final sales, GDP avoids the
double- counting that would occur if one not only counted the sales of bread
to consumers by retailers, but also the sales of bread by bakers to retailers,
1. See, for example, the Survey of Current Business, May 1930, p. 2, “Monthly Business
Indicators.”
National Time Accounting and National Economic Accounting
115
the sales of flour by millers to bakers, and the sale of wheat by farmers to
millers. The second is gross domestic income (GDI), which is measured by
the incomes earned in the form of wages and salaries, rents, interest, and
profits, which is equal to GDP. The third measure is value- added by industry,
which is measured by taking the gross sales of each industry and subtracting intermediate inputs (goods and services purchased from other industries
for further processing), which yields value- added. Value- added is by definition equal to both GDI and GDP.
4.1.2
Market Valuation and Aggregation
The various transactions in the National accounts are valued using market values. These market values provide consistent weights for aggregating
expenditures across types of expenditures, incomes, and industries. The use
of market values avoids the use of explicit subjective or implicit weights
used in other indexes. Market valuation provides comparability across components, and when combined with deflators, (and purchasing power parity measures) comparability over time and across countries. Market- based
accounts are useful in scorekeeping and analysis of events and programs
with multiple effects across industries, commodities, incomes, regions, and
countries (United Nations et al., 2003). They can be used in comparisons
of impacts of differing programs.
Real inflation- adjusted estimates are based on well- developed index number literature. Data based on market prices also have the advantage of coming from business records, thereby avoiding many of the problems of recall
and bias present in household surveys.
The sum of final sales in the economy can also be regarded as a cardinal
measure of economic activity valued at market prices. If consumers allocate
their consumption so that the marginal utility of the last dollar spent on each
product is equal, the prices will represent consumers’ relative valuation of
goods and services. Weitzman (1976) has shown that under certain conditions, maximizing net domestic product (GDP less depreciation) will maximize welfare. (Net domestic product is sometimes described as the amount
of production necessary to maintain consumption while putting aside a
sufficient amount to replace the capital stock used up in production.)
4.1.3
Double-(or Triple) Entry Accounting
The national accounts are a double- entry set of accounts, with final expenditures equaling incomes earned in production (which is also equal to
value- added by each industry). These double- entry accounts are useful
for statistical purposes, as inconsistencies present in individual series are
apparent in reconciling each of the three aggregates. As a former Commerce
Under Secretary described it, the national accounts are the “mineshaft
canary” for the U.S. statistical system.
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J. Steven Landefeld and Shaunda Villones
The double- entry accounts are also used as a set of supply and use tables.
These tables are useful in tracing effects of tax changes and other economic
events and across the three measures of economic activity.
4.1.3
Timeliness and Relevance
To be useful for public and private decision makers, the accounts have
to provide timely information on the state of the economy and accurately
measure the changing U.S. economy. Frequent updating of the accounts is
necessary for accurately depicting trends and providing useful estimates for
decision makers.
Fortunately, the NIPAs have always used data collected for other purposes. These data, combined with the double- entry structure of the NIPAs,
allow for relatively low cost and accurate estimates extrapolated from benchmark data.
The advanced GDP estimates (the early estimates for a quarter) are intended to present an accurate general picture of economic activity: is the
economy expanding or contracting; is growth high or low relative to trend;
is growth accelerating or decelerating; what are the main components contributing to growth; and what are the trends in the main components such
as saving and investment or government? The early estimates are revised
as more accurate data become available, but the general picture—as defined
by these characteristics—is little changed. In a sense, the early GDP estimates are more like an ordinal than cardinal measure.
One of the most important functions of the NIPAs is providing the rigor
of a comprehensive and consistent framework for evaluating the overall
impact of alternative policies and economic events.
4.2
Why National Economic Accounts Are Not a Measure of Welfare
All these attributes notwithstanding, there are significant limitations to
their use as a broad measure of welfare. As Kuznets (1934) noted in introducing the first set of accounts in the 1930s, the prices used to value and
aggregate to GDP are based on the existing distribution of income. The
prices also do not reflect the impact of both positive and negative externalities. And many near- market inputs to production are excluded, as outlined
in the National Academies reports, Nature’s Numbers (Nordhaus 1999)
and Beyond the Market (Abraham and Mackie 2005). The NIPAs exclude:
natural resources and environmental inputs; investments in human capital and health; household production; and investments in R&D and other
intangibles.
More broadly, many determinants of utility are not included. As Nordhaus and Tobin (1972) pointed out, measuring “Net Economic Welfare”
involves a wide range of activities beyond the marketed transactions included
in GDP. Subsequent efforts have focused on “adjusting” GDP to reflect
National Time Accounting and National Economic Accounting
117
the costs imposed by economic growth, such as the depletion of natural
resources, the costs of pollution, or the costs of crime, and adding the value
of household production.
4.3
National Economic Accounts: Nonmarket Production Accounts
Efforts to broaden the scope of the NIPAs have focused on near- market
production activities in satellite accounts, or supplementary accounts. For
example, Landefeld and McCulla (2000) developed household production
accounts that are a combination of market and nonmarket inputs (utilizing
ATUS data) to produce output and are valued at market value or proxy for
market value. They are a double- entry set of accounts, and include detailed
input- output tables for household production.
Household production or environmental accounts provide a more complete picture of sources of growth. For example, the increasing labor force
participation resulted in a larger increase in measured economic growth than
overall production, including household production. Household production accounts provide a more comprehensive picture of the determinants of
demand for goods and services (the trade off between market versus nonmarket). They also highlight the shift from market to nonmarket production
over the course of the business cycle.
Such accounts are useful for a number of scorekeeping, analytical, and
policy activities. Examples include analyses of the sources of growth and
the business cycle; the impact of tax incentives, changes in prices, relative
wages, the provision of child care, and investments in health.
The difficulty with these expanded satellite accounts for household production, the environment, and other items omitted from conventional accounts is that they really do not address the core issue, exemplified by Robert Kennedy’s eloquent critique of GNP: “It measures everything in short,
except that what makes life worthwhile . . . beauty, integrity, wit, strength,
courage, joy, wisdom, learning, compassion, and devotion.”2
4.4
How NTAs Compare to NEAs
Like the NIPAs, the National Time Accounts clearly address a longstanding measurement gap. Kuznets (1934) warned of the misuses of the
economic accounts in the analysis of welfare and urged that the marketbased accounts be expanded to account for the “disamenties of modern life”
and the use of “natural resources.”
The problem has been in developing a comprehensive, consistent, and
objective index that goes beyond GDP to a broad- based measure of welfare.
2. To access a transcript of the speech, go to: http://www.jfklibrary.org/Historical⫹Resources/
Archives/Reference⫹Desk/.
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J. Steven Landefeld and Shaunda Villones
The subjectivity and uncertainty inherent in broader measures of welfare
developed in the 1970s and 1980s resulted in such efforts being abandoned.
The Bureau of Economic Analysis’ experience with environmental accounting in the 1990s also suggest that political decision makers are skeptical of
quantitative measures for nonmarket phenomena based on imputed market
prices.3
The lack of acceptance for broader measures of welfare also may relate to
the urgency of the need for welfare accounts. Unlike the demand for national
economic accounts created by the depression and World War II, the policy
need for, and applicability of, NTAs estimates may be perceived as longerterm and less pressing. However, the need for an accepted measurement
framework and a clearer definition of the need for such statistics underlines
the importance of building professional and public support for the NTAs.
4.4.1
Comprehensiveness
Like the NIPAs, which are a comprehensive measure of market activity
and its components, the NTAs are designed as a comprehensive measure of
total utility and its parts. It covers all activities over the waking hours of the
day. It is designed to cover the range of utility emotions from “happy” to
“unhappy” with a broad variety of emotions. The NTAs present an unduplicated count of activities and associated emotions that allow analysis of
how the parts affect the total U (unhappiness) index.
However, focusing on the U- index rather than the “net affect” of the
full range of emotions may limit the perceived and actual usefulness of the
NTAs. It might be useful to feature both the overall “net affect” and U- index.
The net effect might be thought of as analogous to GDP and the U- index
as analogous to the poverty, with both providing an important perspective
on social welfare.
Use of both the net affect and the U- index help to provide a more comprehensive measure of happiness, but it is not clear how utility that does not
quite fit into the episode- based happiness- unhappiness index is covered.
In particular, how are meritorious—rather than hedonic, or happiness—
measures on Kennedy’s list captured by the NTAs? One would imagine, for
example, that beauty, wit, and joy are captured by the NTAs, but it is less
clear how integrity, courage, wisdom, learning, compassion, and devotion
are captured. Given the sacrifices and effort involved in attaining an education, fighting a battle, or caring for a parent with Alzheimer’s, many of
these experiences that we value as life experiences may indeed be scored as
unhappy—tired, stressed, sad, or painful—by respondents in the episodebased happiness index.
It is also unclear how external factors, such as a war or an economic down3. For more information on BEA’s experience in environmental accounting see the Survey of
Current Business, April 1994, p. 33.
National Time Accounting and National Economic Accounting
119
turn, are reflected in the episode- based index. Do they affect each episode’s
happiness equally, or are they unaffected by such events?
All of these factors may help to explain the source of the differences
between subjective and episode- based measures. The higher rating of the
value of child care and work by the subjective “Juster” index relative to the
“DRM” index may reflect the inclusion of the value of meritorious emotions captured by the subjective “Juster” index, but not the episode- based
“DRM” index. During the episode, when your child is screaming in your ear,
and/or you are changing their diaper, your score of that experience at that
moment is likely to be more negative than positive. Whereas, in reflection,
your subjective evaluation of your experience in caring for your children is
one of the most satisfying you experience.
This difference in what the subjective and episode- based indexes illustrate
may simply indicate that they are measuring different things, rather than
that one or the other is wrong. Or that consumer behavior—ranging from
the large investments households make in child care or luxury cars relative
to their relatively low episodic rating of the value of time spent with their
children or commuting in their luxury cars—is irrational. As Krueger et al.
note, the NTAs—like the NIPAs—are a subset of a broader measure of
utility.
4.4.2
Valuation and Aggregation
By using individuals’ own evaluations of activities during specific blocks
of time and aggregating using those blocks of time, the NTAs avoid the
long- standing problem of many well- being indicators that put a subjective
value, or weight, on the various indicators used to develop an index of wellbeing. The Genuine Progress Indicator, an often cited index in the 1990s,
determined that time children spent watching TV was a negative event and
was subtracted as a subjective negative value associated with that time from
an adjusted GDP estimate.4
In two respects, the NTAs differ from the NIPAs. The first relates to what
time aggregation implies about extreme emotions. With valuation and aggregation using prices, there is lots of room to express different valuations of
different goods and services. The NTAs, on the other hand, are limited to
just a few emotions that are equally weighted based on the time elapsed during each period in the time- use diary, including happy, neutral (interested),
and unhappy (tired, stress, sad, pain). The ordinal ranking of the NTAs and
time aggregation do not seem to adequately distinguish the sadness, for example, that one feels from watching a tearjerker and the emotions one feels
on hearing about the loss of a spouse in the 9- 11 terrorist attack. Such events
4. The latest report (2007) and more information on the Genuine Progress Indicator is available from Redefining Progress Org.: http://www.rprogress.org/publications/2007/GPI%202006
.pdf.
120
Fig. 4.1
J. Steven Landefeld and Shaunda Villones
Trend happiness in the EU8, United States, and Japan
Source: (Veenhoven 2007).
are simply off the chart. Now, the NIPAs do not adequately distinguish such
strong “disutility” but through insurance and other means, life- saving health
expenditures or the replacement of houses and personal property are at least
given a heavy weight.
The second issue relates to what time aggregations of happiness/unhappiness imply about comparisons over time. Real GDP and GDP per capita
show changes over the course of business cycles and growth over time in
standards of living as measured by GDP. However, as KKSSS point out
in their chapter, individuals are able to adapt to a wide range of circumstances. Existing evidence from cross- section, cross- country, and time
series measures suggest a lot of adaptation toward some common level of
happiness/well- being. (See fig. 4.1.)
This lack of variation over time may inhibit their usefulness for analytical
purposes. However, it may be that this lack of variability is the result of using
subjective, “Juster- like,” measures of well- being and that time- series data
using the DRM method will show more variation over time.
4.4.3
Double-Entry Accounting
Although the NTAs are not a double- entry accounting system one can
imagine them being combined with a set of household production accounts
to produce a set of input- output accounts. These tables could use the house-
National Time Accounting and National Economic Accounting
121
hold production accounts to record the supply of goods, services, and time
that are inputs into the production of happiness by activity. The NTAs
could be used to measure the “output” of these activities. Such input- output
accounts could be used for the analysis of economic changes that affect
happiness or by changes in tax incentives, regulations, or investments in
infrastructure (child care).
One of the most intriguing aspects of the NTAs would be the possibility
of integrating them, along with the American Time Use Survey (ATUS) and
the Consumer Expenditure Survey (CES). The ATUS and the CES both
are drawn from the same household survey (a follow- up survey from the
Census Bureau’s Current Population Survey). Such integration would be a
major advance in analysis of consumer demand and economic policy (health
care, etc.). Adding time inputs and relative satisfaction to estimates of consumer spending would significantly expand understanding of the determinants of consumer behavior.
4.4.4
Timeliness and Relevance
If the U- index or net affect indexes change slowly, then the NTAs probably do not need to be constructed or released in as timely a manner as the
NIPAs. As noted previously, constructed average happiness indexes shows
very little change over time (see fig. 4.2). However, the changes over time
in the constructed U- index presented in the Krueger et al. chapter (table
1.18) suggest that there may be more variation using the DRM method.
The changes in the constructed U- index over time only reflect changes in
the composition of time use over time. If the evaluation of episodes of
Fig. 4.2
GDP and other welfare indexes over time
Sources: BEA, University of Michigan, Veenhoven (2007), World Database of Happiness,
Distributional Findings in Nations.
122
J. Steven Landefeld and Shaunda Villones
time spent in different activities also changes over time, the DRM- based
U- indexes and net affect may show more variation over time than the subjective measures.
Even if the U- index moves relatively slowly, it might be useful to construct
“snapshots” for major events like downturns, war, and elections. Although
the NTAs are relatively expensive to construct, users would be particularly
interested in any information that the U- index could supply in answering
the election year question: “are you better off today than you were eight
years ago?”
The U- index will undoubtedly be endlessly fascinating for scorekeeping,
but if the index is relatively stable over shorter periods of time—with limited response to key events—its uses for public policy or in forming public
opinions may be limited. The usefulness of the NTAs might be expanded if
a hybrid model of satisfaction could be prepared and presented to the public.
This hybrid could present both an overall measure of subjective well- being
and evaluated time- use measure by activity. Also, as previously suggested,
the NTAs could be combined with existing and expanded national accounts
and other data series.
However, like the NIPAs, one of the most important aspects of the NTAs
will be their framework. They are a carefully constructed set of estimates
based on people’s use of their time and their own evaluations of the time
spent in different activities. As demonstrated by KKSSS, the NTAs are a
conceptual framework built on a large body of economic and psychological research and the resulting estimates are robust across different samples
and countries. Armed with this framework, analysts and policymakers can
examine how different events and policies may affect the nation’s overall
well- being as well as the individual components affecting that overall wellbeing.
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